On similar note, financial markets in most countries are closed on Monday, but we still have data scheduled from release, including couple of important pieces. The Trade Balance from Japan certainly has the potential to move currencies, especially the Yen. In addition, the Consumer Price Index from China could create a spike in volatility, particularly among the commodity currencies. As always, the Australian Dollar should be most active. I am perfectly content to wait this out and start on Tuesday, with the exception of the JPY, where I might place some sell orders.

Before my hiatus, I discussed a possible sell in the NZD-JPY at around 66.50. Since then, the price rallied but kept returning to this level, making an even more compelling case for shorting this pair. There was a minor breakout on Friday, which I ignored for the reasons mentioned earlier, but now I have a sell at 66.40 looking for at least 100 pips. That said, I would still cancel this trade if conditions remain very thin, meaning very wide spreads. Anything above 10-12 pips suggests lack of participation, the type of environment when whips are possible and even likely.

Another potential trade covered on these pages was a buy in the EUR-CHF. My idea was to go long above 1.2070. The price missed the entry by about two pips and kept falling, eventually testing the 1.20 floor. In response, the SNB promised to defend it with “utmost determination and unlimited Euro buying”. We shall see just how committed they are but I bought the EUR-CHF on Friday at 1.2010. Objective right now is the 1.2070 resistance, risking 30 pips. Realistically, I am prepared to sit on this as long as 2-3 weeks.

Daily chart of the AUD-CAD was suggesting a bearish breakout under 1.0335, which finally materialized. This was not a smooth trade, with the price action less than decisive, but last week it reached 1.0118, just short of my 1.0100 objective. Two more days, which brought a hammer and a doji, convinced me to get out at 1.0224 for 106 pips gain. The main trend remains bearish, but I am done here for now.

Mike K.

Things changed shortly after, when BHP Billiton, the world’s biggest miner, raised concerns about the possibility of a sharp slowdown in demand from China, its top metals consumer. No hard numbers were released, but all of a sudden, everybody remembered that earlier this month China cut its 2012 growth target to an eight-year low of 7.5%. That was enough to send the Australian Dollar, and the other commodity currencies sharply lower. We still have few hours of trading left, and it will be interesting to see if there is another price swing down.

On Sunday, I discussed a possible trade in the AUD-CAD, looking for a short-term bearish reversal using the hourly chart. I sold it at 1.0504, following first hourly bearish candlestick. The price movement here was relatively slow, but eventually the trade brought a profit of 30 pips. I could have held out for another 10 pips, but in my mind the trade had already been taking too long, so pocketing gains was the right thing to do. BTW, another short trade in this pair in this pair, using the daily chart is still possible.

From a shorter-term perspective, I am looking for a trade in the GBP-JPY. On the 15 M charts, the price appears to be forming a bearish reversal, with the latest low at 132.24. I want to sell it at 132.20 with 60 pips objective. If I am right, this could happen relatively fast, as it often does in this pair.

Mike K.

Recently, officials from Australia started to complain about strength of the Aussie. No threats of intervention yet, but it was a change in attitude, following months of no comments on the subject. If Mr. Stevens expresses some concerns, the AUD could respond with a selloff. This would be in line with short-term technical picture in some of the AUD pairs. The AUD-CAD, for example, advanced about 170 pips in the last two days and could be ready for a correction (AUD-USD is virtually identical). On this chart, I would like to see a bearish reversal candlestick pattern to provide entry, with objective of 30-40 pips. That would be a case of fundamentals lining up with technicals.

From a longer-term perspective, the AUD-CAD just completed a major correction, falling from 1.0781 to 1.0335. Now we need to see if this is a major reversal or only a big pullback within the uptrend. That will be decided when (if) the price returns to 1.0335. A bearish breakout there will probably send the AUD-CAD towards the parity, or at least 1.01. Of course, this will take some time, so in the meantime I will also look for a potential bearish reversal on 4 H chart, which , so far, does not show anything of value to me.

The Swiss Franc reacted in manner contrary to what most would expect. It got weaker before the SNB meeting, but recovered after the announcement. The central bank confirmed its intentions to defend the 1.20 level and the EUR-CHF promptly pulled back to that general area. I would expect the price to start moving much slower, in tight ranges and quietly form a bottom before another price run up. There is no trade here yet, but I will be on a lookout for one. In addition, opening gaps are always possible and could create opportunities. Have a great trading week!

Mike K.

For this patter to become official, the EUR-AUD must advance above the high of 1.2616. It is not only a resistance here, but crossing this level would also complete the Cup with Handle pattern. At this point, the EUR-AUD would be officially, from a technical perspective, in an uptrend, with a target of around 1.2950 or so.

Rebounding from a steep correction, the CAD-CHF returned to its prior high for the trend at 0.9400. Couple of weeks ago, the price found support at the 50% Fibonacci retracement level or 0.8934. This confirmed the bullish sentiment, in particular when combined with rising volatility, as shown by the ATR.

Now the CAD must close above the 0.94 handle, in order to continue its rise. The ADX is rising, supporting a trend gaining momentum, and the price is above all important support levels. However, breaking key levels is not always easy, so we must on careful of potential fake breakout. The CAD-CHF is likely to attempt a move soon, perhaps even today.

All of the Japanese Yen pairs have been advancing strongly for several months now and the NZD-JPY is no exception. Here the price gained over 1100 pips, reaching as high as 68.32. At this point, however, this pair went through its first significant correction of the uptrend and dropped to 65.31, before recovering to the 68.33 on Wednesday.

For the rally to continue, the NZD-JPY must close above this level on daily basis, which could prove difficult. The RSI developed a divergence, suggesting that the trend is not as strong. Another indicator, the ADX is in concurrence, having gone flat and not rising any longer. All this points towards a continuation period in the NZD-JPY, even if the general sentiment is still bullish.

Mike K.

The rally in the EUR-CAD, which lifted it from 1.2875 to 1.3479, hit an obstacle last week. It came as a combination of things, which included the 100 SMA, previous resistance level and overextended price. Bollinger bands, with the price clearly above, demonstrated that particular aspect. A bearish candlestick pattern, the dark cloud cover, marked the turning point.

By now, the EUR-CAD retreated to 1.3025, where it found an earlier established support. The price movement is likely to slow down now, trapping this pair in a consolidation, also defined before the latest advance. We should expect smaller price swings, within the 1.3025-1.3241 range. Eventual breakout will probably determine the next direction of the EUR-CAD.

AUD-JPY.

Among the best performing currency pairs in 2012, the AUD-JPY, the AUD-JPY has shown significant gains. Last week it reached as high as 87.99, where it encountered a strong resistance. Together with severely oversold RSI indicator, that proved too difficult to cross, at least for now. The price developed a reversal pattern and turned south, touching 84.80 in early Wednesday trading.

While this correction appears sharp, it is of normal proportions, considering the size of the preceding rally. In fact, it might not be much larger. It depends what happens at the next supported level, or the 84 area. We should watch carefully, because the AUD-JPY could resume the uptrend from there. Otherwise, the price will head for the 81 handle, where the main trendline is waiting.

GBP-NZD.

Finally, after a prolonged slowdown, the GBP-NZD started to increase in volatility. The price moved higher, taking cue from multiple divergences with technical indicators. On Monday, in one swift jump, the GBP-NZD broke the minor resistance at 1.9130. It continued to advance on Tuesday, reaching 1.9483, almost the implied resistance of the 1.95 level.

Here things get tricky for this rally. The price developed a large shooting star, which is a bearish candlestick reversal pattern, probably marking the extent of this run up. For a full-blown reversal, we need to see another large bearish candlestick on Wednesday, now in early stages of formation. The short-term direction of the GBP-NZD depends on how the price will close today.

CHF-JPY.

In line with most other Japanese yen pairs, the CHF-JPY hit an important high last week. Its impressive advance pushed the price to 90.23, a resistance level from an earlier high. There the rally lost momentum, and the CHF-JPY started to pull back. In early Wednesday trading, this correction touched as low as 87.67.

So far, the price has not reached any established support levels. Because of that, we can use the Fibonacci retracement levels for some possibilities. The 38% is at 87.00, while the 50% is at 85.70. If the CHF-JPY is going to retain the general bullish sentiment, one of these levels should become a support. If not, this correction could turn into a bearish reversal, but we need to see more price development.

Mike K.

The old debt would swapped for new 30-year bonds bearing a coupon of around 3.75%, which could rise if Greece’s growth is higher than current forecast. It is still unclear what size of “haircut” (losses) will the bondholders endure, but they will be substantial, at least 50%. For example, the Greek parliament is expected to pass legislation next week that would force some bondholders to take a loss of about 70% of principal. These are the holdout parties, which have rejected previous negotiations. Their holdings are estimated to be between EUR 30 billion and EUR 50 billion, depending on sources. We could assume that those participating in the “voluntary” swap will receive somewhat better terms. More details should emerge on Monday, before or during the Eurozone finance ministers meeting.

The Euro has been getting stronger last week, but late Friday brought considerable weakness. On the short-term chart, the EUR-USD looks like it wants to correct more. It closed at 1.3138, right at support level. I would like to sell it there, with 30 pips objective, but that will depend on how the price opens. Probably a better opportunity will present itself if the EUR-USD drops to 1.3110. I will be looking for a minor low there, with intentions of selling it on next bearish breakout, targeting 50-60 pips. We shall see how the opening unfolds.

Last week, the Australian Dollar stopped its advance against the CAD. At the moment, the uptrend is still valid; the price is showing a consolidation on the intermediate term chart. This could change in a hurry if the price drops to 1.0640, below the latest minor low. If that happens, the AUD-CAD could easily continue down for another 80+ pips. However, if this consolidation persists, chances of reversal will diminish, favoring a bullish continuation. Gaps at the opening in all currency pairs are always possible, something to consider when looking trading opportunities. Have a great trading week!

Mike K.

This state of affairs did not last long, however, only until the NFP Report. The Nonfarm Payrolls brought another surprise for the day, showing an increase of 243K jobs in January, handily beating the forecast of 150K. It also bested December’s revised 203K growth and was the strongest job growth in nine months. The increase in hiring pushed the unemployment rate down to 8.3%, the lowest since February 2009. Late in the day, the ISM Non-Manufacturing index delivered yet another surprising result, coming at 56.8. To put in perspective, analysts expected a reading of 53.1 and previous one was at 52.6. The good news proved damaging to the US Dollar, though, as if it was losing its safe haven status when American economy shows signs of improvement. In case of the USD-CAD, it dropped sharply, deep under the parity level, making it one of the most eventful days for this pair in a long time.

The Euro, fighting own problems, did not have such a good day. Initially, it plummeted over 100 pips, although it recovered a good portion of that as the day went on. Clearly, markets are losing patience with what is going on in Greece. As we recall, this country “was on a verge” of reaching an agreement with its creditors two weeks ago. Here we are, in early February, still hearing exactly the same phrase. Obviously, there is no progress and that could be costly for the EUR in days ahead. Have a great weekend!

Mike K.

In a typical fashion for Friday, I looked at trading short-term price swings at the start of the London session. The EUR-USD formed a price range in hours leading to European opening, with well-defined support and resistance. Eventually, there was a bullish breakout, which filled a buy order at 1.3120. My objective of 30 pips was met fast, on a nice follow-up by the price.

Another trade involving the Euro was in the EUR-CAD, which I discussed it at the start of this week. It took a while, but the price finally started to move in the desired direction. Friday brought a nice acceleration on Friday, closing at 1.3240. I got out at the end of the day with 85 pips gains. Even though the trend still has some room to go, there are often reversals at the start of the week, so I simply want to avoid it. Other trades covered in the last few days are still valid, at least for now. Have a great weekend!

Mike K.

While it sounds good, to date not one Japanese company took advantage of this source of capital. Interestingly, last year Japanese multinationals went on a largest oversee spending spree in at least 12 years, buying about $90 billion worth of foreign companies. Some analysts say that Japanese businesses simply have surplus of funds and do not need to borrow, while others argue they are simply avoiding cumbersome and time consuming government process. Whatever the reason, this program appears to be a failure. There was talk about expanding it, but since there is no interest, it could expire in eight months or so, leaving Japan with intervention as the most viable way to weaken the Yen.

On Sunday, I discussed a short-term reversal trade in the GBP-USD. I was looking for a bearish reversal candlestick pattern on the hourly chart within first few hours of opening. The price unfolded not exactly the way I wanted, with a bearish sign forming immediately after trading started. Regardless, I sold the GBP-USD at 1.5542, seeking 50 pips. My objective was probably too ambitious, the price only dipped to 1.5516 before turning bullish. Since things were not going my way, the trade was closed at 1.5562 or 20 pips loss.

A week ago, I covered CAD-CHF on these pages, or more to the point, its intermediate term chart. My idea was to go short at 0.9230, with 100 pips objective. The price rallied at first but eventually turned south and triggered my order. I closed it earlier today at 0.9163 or 67 pips profit. It is short of target, however, the price dipped much lower and rebounded, so I thought it prudent to pocket some gains and move on.

With the British Pound very strong today, it will be interesting to see if this continues. Some technical developments suggest it will. On the 4H chart of the GBP-CAD, for example, the price is finding repeated resistance at just above 1.5800. The more often this level is tested, the more likely it is to break with a bullish continuation. I have a buy order at 1.5815 looking for 100 pips. With any luck, it could happen before the end of this week…

Mike K.

The BoJ will be followed on Wednesday with policy meetings in the USA and New Zealand. While the RBNZ announcement has the highest probability of some action, all eyes will be on the FED. Nobody expects a change this time, but it will be the first meeting when the central bank releases its interest rate projections. It goes without saying that everybody wants find out when FED expects the first interest rate hike and how much tightening is projected in the following years. Also, in recent few weeks public comments by regional FED presidents seem to signal a willingness to ease monetary policy further this year, the so-called QE 3. Latest fundamental data has been mostly positive, indicating economic growth, well, recovery in the USA. That does not rule out any action, but it probably pushes any announcement of a major policy move out to meeting later in the year. We will find out in few days.

Recently the uptrend in the AUD-CHF has become very choppy, as if ready to reverse. Corrections are bigger, volatility is higher, possibly building a top on the intermediate term chart. I would like to short it if the price dips under the recent low of 0.9695, with entry at 0.9690. This trade, if filled, will attempt to capture 120 pips. Alternatively, if the AUD-CHF continues higher and makes a new high, it is likely to form a divergence with the MACD. In such event, it could offer a decent shorting opportunity.

Another currency pair of interest is the EUR-CAD, also on the 4H chart. Here the price already bounced from the low of 1.2875 to 1.3147, perhaps forming a bottom. I want to go long on a bullish breakout with entry at 1.3155. The target is 1.3300. There is a small complication; I would like to see a little more pullback first. Not necessarily much lower, but I do not want to enter into a trade if the EUR-CAD rises right after the open. Initial opening moves often lead to false breakouts, something I want to avoid. After the first few hours, the order becomes valid.

While waiting for those trades, which could take some time because of relatively large time scale, I will look for shorter-term opportunities. One of them could materialize in the GBP-USD, among others. After a sharp rally on Friday, the cable is likely to go through a correction. Preferably, I would like to see a little continuation, but the signal itself will be a bearish reversal candlestick pattern on the hourly chart. Objective will be 50 pips, although details will have to be worked out once the entry is confirmed. Have a great trading week!

Mike K.